POLAND – Poland's 14 second-pillar pension funds (OFEs) are becoming increasingly important institutional investors, according to a report by the KNF, the country's financial sector regulator, which analysed the funds' investment activities over the three-year period to the end of the third quarter of 2012.
Over that period, the number of OFE members increased by 11.7% to more than 15.9m, while assets increased to PLN252.5bn (€61.1bn) from PLN82.4bn.
Contributions over this period totalled PLN51.3bn, including a fall-off as of 1 May 2011, when the rate was cut from 7.3% of gross wages to 2.3%.
The three-year rate of return ranged from 12% (Polsat) to 21.3% (Nordea) – above the 10.5% inflation rate and the minimum rate of return (9.6%), below which pension companies must compensate funds from their own capital.
Over the period, the share of assets invested in government bonds fell from 66.5% to 46.7%.
While the OFEs' share of Treasury debt financing fell by 3 percentage points to 21.1%, the report nevertheless described them as a stable funding source.
According to more recent KNF data, the OFEs cut their share further, to 44.8% by the end of 2012 – and missed out on one of the biggest Polish bond market rallies in recent years.
The equity share grew from 28% to 33.3% as of the end of the third quarter, while the share in non-government bonds jumped from 2.4% to 11.3%, and that in bank paper and deposits from 2.3% to 8.1%.
Less than 0.7% of the aggregated OFE portfolio was invested in foreign assets – well below the restrictive 5% limit – with 54% of this share in euro-denominated assets, 20% in US dollar securities, 13% in Hungarian forint paper and 8% in Czech koruna assets.
By regional standards, Polish pension fund investment in equities is high.
As of 2011, the equity limit, initially set at 40%, has increased by 2.5 percentage points a year.
The report highlighted the growing importance of the OFEs as Warsaw Stock Exchange (WSE) investors.
As of the end of the third quarter of 2012, OFE investment accounted for 11.9% of the WSE's capitalisation and 24.6% of the free float, compared with 6.7% and 12.4%, respectively, three years earlier.
In the case of listed companies of Polish origin, the OFEs accounted for 16% of capitalisation and 36% of the free float.
The returns on equity investments differed wildly.
The best gains over the three-year period came from the copper mining group KGHM Polska Miedź (PLN3.4bn), oil concern PKN Orlen (PLN1.9bn) and the bank PKO BP (PLN1.9bn).
The worst losses were recorded by real estate developer Globe Trade Centre (PLN938m), vodka producer CEDC (PLN932m) and bathroom supplier Rovese (PLN762m).
The KNF expressed concerns about the high level of share-price volatility over the period – notably in the second half of 2011 as the euro-zone crisis and sovereign indebtedness intensified – and its impact on fund performance and viability.
The regulator has recommended the creation of "safe" sub-funds for members nearing retirement – under the current system the pension companies can only run one aggregated fund – and higher capital requirements for the companies.
Both items are on the government's crowded legislative pension agenda for 2013, alongside a payout system for the first significant tranche of retiring OFE members, and compliance with the European Court of Justice's 2011 ruling obliging the government to increase incrementally the 5% foreign investment limit to 30% by 2021.